Nautilus Inc. reported sales for the fourth quarter rose 18.5 percent to $77.1 million, boosted by a bounce back in its Retail business.
Net income from continuing operations for the fourth quarter of 2013 improved 15.1 percent to $8.4 million, or 27 cents per share. Adjusted net income figures exclude nonrecurring income tax benefits and expenses that impacted the 2012 fourth quarter.
Total gross margin declined 70 basis points to 47.6 percent due to a greater percentage of sales in the quarter coming from its lower gross margin retail segment. Total operating expenses decreased to 34.5 percent of sales from 36.5 percent, underscoring its initiatives to leverage operating expenses across higher sales volume.
By segment, sales for the Retail segment jumped 47 percent to $32.1 million. On a conference call with analysts, Bruce Cazenave, Nautilus’s CEO, said the strong sales “reflects strong retailer acceptance of the company's new lineup of cardio products, as well as increased sales for existing strength products.”
The 2012 fourth quarter was impacted by some Retail customers accelerating a portion of their purchases into the second quarter from the third and fourth quarters, compared to their typical buying patterns, in anticipation of the price increases implemented in the second half of last year.
Bill McMahon, Nautilus’ COO, said the Retail segment benefited from healthy acceptance of a new lineup of model-year 2013 Schwinn cardio products that feature new upright and recumbent exercise bikes and elliptical machines at multiple price points. With positive reviews, McMahon said the new Schwinn line of products “gives us confidence as we head into the fall 2014 sell-in season with the intention of building on this foundation to position ourselves to drive for further gains in floor space with our retail partners.”
Operating income for the Retail segment nearly doubled in the quarter to $6.5 million compared to $3.7 million in the fourth quarter last year. Retail gross margin improved to 27.4 percent from 24.1 percent due to a combination of the mix of new products, higher sales volume, and improved overall overhead operational efficiency.
Nautilus is also heightening its focus on growing internationally in its Retail segment while also looking to build on its recent successes in the large domestic retail market. Said Cazenave, “Even with the progress we have made in the past couple of quarters, we still feel that we are very underrepresented at leading domestic retailers, and are well poised to steadily gain more market share.”
Net sales for the Direct segment grew 4 percent in the quarter to $43.0 million thanks to double-digit growth for its cardio products, especially the Bowflex TreadClimber product line. Its direct segment results also benefited from the performance of the Bowflex UpperCut, which was launched in early 2013. This growth was partially offset by a decline in strength products, such as home gyms.
Said McMahon, “Sales of these products have primarily transitioned over to our retail segment, where we can further leverage the awareness previously created by direct-to-consumer advertising.”
McMahon said the TreadClimber still has “strong growth potential” in 2014. The company’s big Direct launch is the Bowflex MAX Trainer, which combines the movements of a traditional elliptical with a stairstepper and represents an “equally unique product for the very large and growing elliptical machine market.”
Overall, the strength category across Digital and Retail grew at a double-digit pace in 2013
Operating income for the Direct segment slid 13.8 percent in the quarter to $5.6 million. Higher sales and higher gross margins were offset by higher media and advertising investment to particularly support the TreadClimber business. Direct gross margin was 60.2 percent, up from 58.9 percent, benefiting from improved overall overhead operating efficiency and cost improvements.
In the full year, net income from continuing operations improved significantly, to $48.1 million, or $1.53 per share, compared to $10.6 million, or 34 cents, a year ago. Sales grew 12.8 percent to $218.8 million. In the Retail segment, sales were $76.8 million, an increase of 20 percent. Direct sales increased 9 percent to $136.7 million.